The Pros And Cons Of Central Banks

Independent central banks are an institutional tool that many think can help governments make effective public policy. A central bank can be defined as a bank set up by the government specifically to help handle its transactions, to coordinate the policies of private banks, and to control interest rates (Shively 112). Interest rates can be controlled either by lending its reserves freely and lowering interest rates by increasing the amount of money in circulation, or by decreasing the amount of money in circulation which thereby increases interest rates (Shively 112). Every modern state has a central bank; in the United States, it’s called the Federal Reserve. Just how autonomous each one is depends on the state that governs it. There will always be some tension between state leaders and central banks. Utilizing interest rates to regulate inflation can lead to unattractive outcomes. “In particular, raising interest rates to cut back on economic growth when jobs are expanding rapidly is not a good way to make friends!” (Shively 113). Political scientists and economist have alleged that any central bank closely controlled by political leaders would not necessarily work to reduce inflation. If the state …show more content…
Corruption is defined by Shively as, “the use of public resources for private gain” (115). It is important to address corruption for two reasons. Number one, the ramifications from it can be grim, and not what any society should condone. And two, while it exists everywhere, it is worse in some places than others, so there must surely be something we can do to resolve it. Corruption can cause lack of faith, cynicism, and disregard for the law. It also has economic effects. An example of this given by Shively (115) is when Saddam Hussein used billions of dollars of Iraq’s money for his and his family’s benefit. Corruption in Italy added another $200 billion to its national